The federal courts should consolidate 14 lawsuits from merchants seeking to force some of the nation’s leading credit card issuers to lower their fees, defense attorneys argued Thursday in a hearing before a seven-judge panel.

Attorneys for the plaintiffs, which include the country’s largest merchants associations, wanted some of the cases to be argued separately. They also argued that the case should be moved to New York, while defense lawyers want the case heard in Atlanta.

The seven-judge panel chaired by U.S. District Judge William Terrell Hodges of Florida did not issue a decision at the end of the hearing and did not indicate when a ruling might come.” We will take the matter under submission,” Hodges told the attorneys, repeating the same phrase he uttered at the end of 11 unrelated cases that went before the Judicial Panel on Multidistrict Litigation.

The credit card lawsuits pit some of the nation’s largest merchant associations and retailers, including Walgreen Co. and Safeway Inc., against credit card issuers such as Visa USA, MasterCard Inc., and a number of major banks, including Citigroup Inc., Bank of America Corp. and JPMorgan Chase.

Last week, four merchant associations filed a new class action suit in New York, accusing the defendants of engaging in collusive practices in setting interchange fees. The suit asked for an injunction to stop the alleged collusion as well as unspecified damages.

The plaintiffs in that suit – the National Association of Convenience Stores, the National Association of Chain Drug Stores, the National Community Pharmacists Association and the National Cooperative Grocers Association – represent thousands of merchants nationwide. The plaintiffs claim interchange fees, which are paid by the merchants each time a customer uses a debit or credit card, are passed down to consumers in higher prices.

In 2004, they estimated interchange fees cost the average American household about $232 a year.

The same law firm also filed the latest merchant suit in U.S. District Court for the Eastern District in New York. In July, seven big retail chains led by Kroger Co., Albertson’s Inc. and Safeway, filed a price-fixing suit against Visa in federal court in Manhattan. Plaintiffs in similar cases have had some success in the courts in recent years. In 2003, Visa and MasterCard agreed to pay $3 billion to retailers and to reduce the fees it charged for debit card transactions. Two years earlier, a federal court in Manhattan required Visa and MasterCard to drop rules that prohibit their member banks from also issuing American Express or Discover Cards.

The case, brought by the Department of Justice, eventually was appealed by the card associations to the U.S. Supreme Court. The Supreme Court declined to review the case in 2004

By Lance Orr NATSO, the trade association representing America’s travel plaza and truck stop industry, will join other merchant associations in a class-action lawsuit that alleges that Visa USA, MasterCard International and a number of major banks are engaging in collusion in setting interchange fees.Credit card fees have greatly increased in recent years, and the interchange portion of that fee – set by Visa, MasterCard and banks – is one of the highest in the world, averaging an estimated 1.7 percent.When a travel plaza accepts a credit or debit card in return for products or services, the transaction is processed through its bank and the issuer of the credit card. Both the issuing bank and the travel plaza’s bank charge “interchange” fees for processing the transaction, and these fees are paid by the travel plaza operator.Although interchange fees, which amount to $20-24 billion, are charged to cover the costs of credit risk and transaction processing, the fees have greatly increased throughout the years, while costs have declined.The suit, which seeks injunctive relief as well as damages, was filed in the U.S. District Court for the Eastern District of New York on Sept. 23 by the law office of Robins, Kaplan, Miller and Ciresi. They acted on behalf of the National Association of Convenience Stores, National Association of Chain Drug Stores, the National Community Pharmacists Association and the National Cooperative Grocers Association.

Credit card firms, including Visa and Mastercard, are under increasing attack over their fees, with the largest US merchant groups now joining the fray. (BBC NEWS)Four groups representing retailers have filed a class action law suit accusing card issuers of colluding to fix fees.

The merchants are seeking billions of dollars in damages.

Visa and Mastercard, which have already come under fire in the US and UK for their business practices, deny any wrongdoing and defend their charges.

The legal action has been brought by the National Association of Convenience Stores, the National Association of Chain Drug Stores, the National Community Pharmacists Association and the National Cooperative Grocers Association.

Credit card interchange fees are the third-largest expense for many chain drug stores after rent and the cost of labour Craig Fuller Chief executive National Association of Chain Drug Stores MasterCard said that the legal action is “without merit”, adding that the retailers wanted “the benefits of accepting payment cards without having to pay for the value of the services they receive”.

Visa said it was confident it would be able to defend its fees, calling them “fair”. A number of banks also have been named in the law suit, including Citigroup, Bank of America, and JPMorgan Chase.

At the heart of the battle are the interchange fees charged by credit card companies. A retailer has to pay a fee of about 1.7% of the total value of goods in order to get payment from the credit card company.

The merchants complain that this is rate is more than double the rate paid in Europe and Australia, and that the fee is being used to underwrite promotional offers at the credit card firms.They estimated that the card companies’ interchange fees cost the average US family $232 (£131) during 2004.

“Credit card interchange fees are the third-largest expense for many chain drug stores after rent and the cost of labour,” said Craig Fuller, chief executive of the National Association of Chain Drug Stores.

Ongoing fights

Visa and MasterCard have previously been embroiled in lengthy legal battles regarding their fees and business practices.

In 2003, Visa and Mastercard agreed to pay about $3bn to settle a legal action brought by retailers who argued that they were forced to accept higher-cost, signature-verified debit cards. Last year, the US Supreme Court upheld a decision that found Visa and Mastercard were wrong to stop member banks from issuing credit cards on rival networks such as Discover and American Express.

In the UK, meanwhile, the Office of Fair Trading (OFT) accused Mastercard and the banks issuing its credit cards of overcharging customers. Mastercard has changed its fee charging practices in the UK and said it plans to appeal the OFT’s decision.

September 27, 2005 Visa and MasterCard, along with major banks such as Capital One and Bank of America, face an accelerating legal challenge by merchants ranging from chain stores to photo shops to grocers.The lawsuits allege that major banks and the Visa and MasterCard associations charge excessive “interchange fees” to retailers when customers pay for goods using a Visa or MasterCard. Retailers have to pay the interchange fees in order to receive payments from transactions made using those cards, and the plaintiffs claim the fees are disproportionately high compared to the money they receive from the transaction.

The costs of the interchange fees are passed on to consumers, who have to pay more for goods without realizing it. Mitch Goldstone, CEO of Irvine, CA-based 30 Minute Photos Etc., one of the original lawsuit plaintiffs, has called it a “hidden tax” on consumers.Goldstone filed the first major lawsuit in June of 2005. Major grocery chains such as Kroger’s and Safeway filed their own litigation in July 2005. Retail store associations, including the National Association of Chain Stores (NACS) and the National Association of Chain Drug Stores (NACDS), then filed a class-action antitrust suit this month.The various lawsuits now go to a Multi-District Litigation (MDL) hearing on Sept. 29th in Asheville, North Carolina. The MDL hearing will determine what form the lawsuits will take and how they will proceed.Goldstone told ConsumerAffairs.Com the lawsuits are “the biggest litigation since AT&T in the late ’80’s.”

His crusade started when he received a notice from MasterCard that his interchange fee for frequent-flyer card usage was going up. “I sent letters, cards, and e-mails asking for them to rescind this fee. No response…I didn’t anticipate being the lead plaintiff in a case this big.”Goldstone views the lawsuit as standing up for retailers and consumers who are forced to shore up banks’ profits.

“Retailers are beholden to credit card companies. We’ve moved so far to an e-commerce model that if I don’t accept credit cards, I’m out of business.”

Visa and MasterCard, he said, enjoy the benefits of a “noncompetitive” situation, where “a mother going out for a gallon of milk is subsidizing a wealthy customer’s free flight,” because they’re paying the same rates for goods, even if the mother pays cash or writes a check.

Jeff Lenard, spokesperson for NACS, concurred. “This is an imbalance between fees and economics,” he stated. “If you look at other countries’ [interchange fee] rates, they’re far lower than ours. Why are they so much higher in the United States?”

The, in both Lenard’s and Goldstone’s views, is to move to a “cost-based interchange” system with “no other component or profit” attached. “Ultimately,” Lenard stated, “this hits our bottom line.”Credit card companies and banks are already reaping tremendous windfalls from the interchange fees levied when drivers use credit cards to pay for gas.

The Washington Post reported on Sept. 25th that banks’ fees for credit card purchases of gas have risen by 64 percent since last year, generating huge profit while forcing gas station owners to eat up more of the costs of processing fees, and leaving consumers paying higher and higher prices.

“Credit card companies are making 8 or 9 cents a gallon” off the fees, says Lenard.

Despite gorging on interchange fees, many large financial services companies face a cloudy future. Homeowners are using home equity loans to pay down debt and buy items usually reserved for credit cards, while cardholders are paying off their debts faster and in greater amounts. MBNA has already felt the backlash of lost revenue, leading to its buyout by Bank of America.

As one insider analyst put it in an interview with Reuters, “You’ve got consumers and merchants revolting. They’re the two customers of this industry … That’s not good.”

Goldstone theorizes that the rush to set up credit card companies for initial public offerings (IPOs) is a way for them to “throw off liability onto the consumer.” As profits drop and consumer anger grows, “you’ll see a lot of them running to the exit as quickly as possible.”

Goldstone runs an online blog, WayTooHigh.com, which tracks the daily updates of the lawsuit. “Since this case started,” he says, “I haven’t received a single negative complaint.”

NACS, Other Associations File Antitrust Case Against Visa, MasterCard and Major U.S. Banks NEW YORK — NACS was one of four major merchant associations that on Friday, September 23, 2005, filed an antitrust, class-action lawsuit alleging that Visa, MasterCard, Bank of America, Citibank, Bank One, Chase Manhattan Bank, J.P. Morgan, Chase, Fleet Bank, Capital One, and other banks are engaging in collusive practices by setting credit card interchange fees at supracompetitive levels.The suit was filed in the U.S. District Court for the Eastern District of New York by Robins, Kaplan, Miller & Ciresi LLP.NACS and the other plaintiffs–the National Association of Chain Drug Stores (NACDS), the National Community Pharmacists Association (NCPA) and the National Cooperative Grocers Association (NCGA)–represent hundreds of thousands of drug stores, convenience stores and food stores across the United States that accept Visa and MasterCard as a form of payment. In addition, the case, as a class action lawsuit, represents millions of card-accepting retailers in the U.S.The next stop for the NACS et. al. litigation will be Asheville, NC, on Thursday, September 29, 2005, when the more than 30 cases now filed against either VISA, MasterCard and banks will be reviewed by a panel during a Multi District Litigation (MDL) hearing. The purpose of the hearing is to hear arguments from the plaintiffs and defendants on how and where these cases should be consolidated and adjudicated. There are differing opinions between plaintiffs and defendants on which court is the best venue for the cases and the MDL hearing is the process that sorts this issue out. For the NACS et. al. class action matter, the preferred venue is the second circuit, Eastern District of New York, which is the same court that handled the Wal-Mart case that settled in 2003.In the United States, interchange is the largest component of credit card fees and has a significant impact on American consumers, who are affected by interchange rates that are among the highest in the world. Interchange rates cost the average American household approximately $232 a year in 2004.When consumers purchase goods or services with a credit card, the payment is processed through the merchant’s bank and the bank that issued the consumer the credit card. The issuing bank charges the merchant’s bank a fee to process the transaction. The merchant’s bank then adds its own fee for processing the transaction, and passes on both of these fees–collectively known as interchange–to the merchant. “The credit card interchange system serves as a hidden tax, both on merchants and consumers, and raises the costs of all products regardless of the form of tender,” said NACS CEO Hank Armour.“ And these credit card interchange fees have rapidly increased over the past several years, despite efforts by individual convenience stores to control these costs or make the competitive market work.” Interchange fees are meant to cover the cost of processing a credit card transaction and the risk taken by the issuing bank that the credit will not be repaid. However, NACS and the other the plaintiffs say that both fraud costs and the cost of processing are steadily decreasing, while U.S. interchange rates continue to increase.Interchange fees are substantially higher in the United States than almost any other industrialized country. Other countries have taken action to address the market problem created by these monopolies. Recent changes in Australia and countries in Europe, for example, have decreased rates from about 0.95 percent to about 0.55 percent.“Credit card interchange fees are the third-largest expense for many chain drug stores after rent and the cost of labor,” said NACDS CEO Craig Fuller. “These costs have skyrocketed over the past years even though the costs of credit card transactions for the banks have fallen. NACDS weighed many options in dealing with this issue and decided to seek litigation only after careful deliberations, with the ultimate recognition that it was necessary for the long-term reform of the system,” added Fuller. The suit’s plaintiffs added they would seek damages and injunctive relief to stop the alleged anticompetitive practices of banks and credit card companies.“We are not seeking some form of temporary relief; we are looking for long-term reform of the credit card interchange fee system,” said John Rector, NCPA general counsel. “The current system discriminates against small, independent businesspersons, and there is no basis for that discrimination. We ultimately seek a competitive and fair interchange fee system. Interchange is much higher in the United States than any other country, and there is no legitimate basis for that.”In May 2005, The Merchants Payments Coalition Inc. (MPC), a broad coalition of business organizations, including NACS, applauded the Federal Reserve Bank of Kansas City for holding a conference on credit and debit card interchange fees, saying that the rapidly escalating fees amount to a hidden tax on U.S. consumers. “The fees that the credit card companies charge defy logic and they are using them to increase profits far more than to provide any meaningful benefits to retailers,” said NACS Senior Vice President for Research Teri Richman, who serves as the MPC secretary.“Credit card company rules and some state laws effectively prohibit retailers from providing discounts for cash or checks in all but a handful of situations. As a result, consumers pay more even when they don’t use their cards. It’s time for this constant picking of consumers’ pockets to come to an end,” stressed Richman.The Merchants Payments Coalition is made up of trade associations representing retailers, restaurants, supermarkets, drug stores, convenience stores, gas stations, on-line merchants and other businesses that accept credit and debit cards and are concerned about the increasing interchange fees charged by banks and credit card companies to process credit and debit transactions. A number of the associations were involved in antitrust litigation settled in 2003 that forced Visa and MasterCard to lower interchange rates for signature debit transactions. The coalition estimates that interchange collected from its members accounts for about one-quarter of U.S. interchange.NACS has focused on the issue of escalating credit card fees since 2002. At the NACS Show 2003, NACS, in partnership with First Data Corporation, introduced the NACS Card Processing Program to reduce participating members’ processing fees through processing efficiencies and the aggregation of their transactions with NACS members and others in the industry.NACS estimates that participating companies can expect to save, on average, $4,250 per store per year. “This ‘interchange plus’ program provides retailers a program that charges cents per transaction versus a percentage of the transactions, saving them real money,” notes Gray Taylor, NACS vice president of research. A major advantage of the cents-per transaction approach is that as the dollar value of the transaction grows (such as with the rising price of gasoline), the card processing fees remains the same.

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WayTooHigh.com: The Credit Card Interchange Report, is edited by Mitch Goldstone, co-founder of California-based ScanMyPhotos.com, the international online photo preservation service.
Goldstone and co-owner, Carl Berman are also the lead plaintiffs and class representatives in a antitrust class-action litigation against Visa, MasterCard and major banks that was filed in 2005.
This informational web site was created to provide news and commentary updates only. None of the information posted on WayTooHigh.com is intended to constitute legal arguments; it reflects only the opinions of its co-editors and not of any other plaintiffs or other parties involved in the merchant antitrust litigation. The information is not guaranteed to be correct, complete, or current. We make no warranty, express or implied, about the accuracy or reliability of the information posted by WayTooHigh.com or at any other Web site to which this site is linked. (c) 2010